Bill Mongelluzzo, September 19, 2014, JOC.com
BNSF Railway is spending billions of dollars to double-track key segments of its northern tier route, purchase equipment and hire additional crew, but a company executive told grain shippers this week it could take two to three years for the investments to produce all of the results they are looking for.
“We will spend money, and a lot of it,” Anne Erickson, general director, feed grains, feed products, oil seeds and meals, told the Midwest Shippers Association conference in Milwaukee on Wednesday.
The North American rail network is experiencing service issues that began during the harsh winter of 2013-14 and continues to this day, but BNSF’s northern tier route connecting the upper Midwest with the ports of Seattle and Tacoma has been hit especially hard.
Grain shipments from North Dakota normally take five days to reach the Pacific Northwest ports, but this year the transit times have been averaging eight days, said Mike Steenhoek, executive director of the Soy Transportation Coalition. The delays are resulting in late deliveries of soybeans to buyers in Asia, and are tarnishing the reputation of the U.S. as the world’s most reliable supplier of soybeans, he said. Container carriers are reporting a 50 percent increase in rail transit times from the Midwest to ports in the Pacific Northwest, with no relief in sight. The delays come as BNSF and other railroads are coming under pressure in Washington to improve rail service ahead of the coming crop shipment.
Railroads in the U.S. and Canada concede that train velocity and railcar dwell time, two key indicators of productivity, deteriorated during the brutal winter and never fully recovered. The poor service levels come just as major commodities including grain, oil and coal are moving in record or near record volumes, said Jay O’Neil, senior agricultural economist at Kansas State University.
The U.S. Department of Agriculture is projecting record corn and soybean crops for the harvest season that will begin in the next two weeks. Canada, meanwhile, has record grain volumes in storage.
The gain surpluses are forcing prices down, and this is expected to spur higher consumption domestically and overseas. “What happens if there is a huge crop in 2015? This could be a two-to-three year cycle of low prices,” O’Neil said.
Grain is competing with oil, coal, intermodal and other cargo segments for scarce capacity on the rail networks. For example, about 60 percent of the oil that was shipped from the Bakken formation in North Dakota in August moved by rail. About 20 percent of BNSF’s growth this year came from North Dakota, Erickson said..
The railroad is expanding its capacity on several fronts. BNSF increased its agricultural shuttle sets by 44 percent in response to the surge in grain volumes, she said.
Also, BNSF by the end of the year will add 500 new locomotives to its fleet. It is hiring 5,000 employees and increasing its double-track network in North Dakota to improve capacity. It will spend $5 billion in capital investments this year, with about $1 billion of that amount earmarked for the northern tier.
O’Neil, however, warned the railroads that simply adding equipment to congested networks is not the best strategy. “We don’t need more railcars, we need greater efficiencies,” he said.
On the other hand, grain shippers must do their part to improve rail fluidity, O’Neil said. He advised shippers to project their equipment needs four to five months in advance. “If you wait until 30 days before you need it, you bring the problem on yourself,” he said.
One positive development from this second consecutive year of strong grain harvests is that prices have come down, and this will generate strong local demand for grain products. “This is good. It will soak up more grain where it is produced,” O’Neil said.